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Tuesday, September 30, 2014

Comments of most right-wing critics of Piketty’s Capitalism in the 21st Century suggest they haven’t read the whole book

By Marc Jampole

Here is
another excerpt from my on essay on Thomas Piketty’s Capitalism in the 21st Century. You can read the full article
in the latest issue of Jewish Currents:

A few years back, when government debt trumped all other macroeconomic concerns
in the news media, a fairly shoddy economic study called This Time
Is Different: Eight Centuries of Financial Folly, by economists
Carmen M. Reinhart and Kenneth Rogoff, caught the attention of the news media
because it concluded that countries with public debt greater than 90 percent of
gross domestic product suffered measurably slower economic growth. Politicians
and journalists throughout the world used this “new discovery” to bolster
assertions that governments everywhere had to reduce debt instead of pumping
money into the economy to create jobs. The problem was that Reinhart and Rogoff
miscalculated in a number of places and even made counting errors. With their
bad math corrected, no real correlation was found between levels of debt and
economic growth.

The Occupy movement next grabbed the
attention of the media, which began to devote significant time and space to the
growing inequality of wealth and income in the United States and worldwide.
That set the stage for Thomas Piketty’s left-leaning Capital
in the Twenty-First Century to become the “hot book” of our day, a
cause célèbre or bête noir, depending on the political views of whoever is
commenting.

Summing up years of research by
Piketty, a professor at the Paris School of Economics, and his frequent
collaborator, UC-Berkeley economics professor Emmanuel Saez, Capital
in the Twenty-First Century presents a detailed history of how
wealth and income have shifted in the developed world since 1800, and documents
the dramatic increase in inequality of wealth and income over the past
thirty-five years. Most significantly for the book’s notoriety, Piketty
proposes a grand theory of inequality that proposes that in all but high-growth
economies, wealth inequality will naturally increase because the return on
capital tends always to exceed the rate of economic growth.

For a technical work jam-packed with economic theory, Capital in the Twenty-First Century has
sold a tremendous number of copies. Left-leaning pundits and economists have
supported Piketty’s research and findings while often disagreeing with his
proposal on how to decrease wealth inequality throughout the world. The right
and mainstream have had fits trying to disprove Piketty’s findings.

Most of their criticism crumbles
under routine inspection. Daniel Shuchman and critics in The
Economist, for example, have stated that Piketty’s analysis ignores
ways in which wealth and income trickle down, such as through non-profit
funding of community activities. These writers merely demonstrate that they
haven’t read the book cover to cover, since Piketty addresses these issues
extensively.

Tyler Cowan in Foreign Affairs and Martin Feldstein in the Wall Street Journal atomize wealth in a feeble attempt
to prove that it doesn’t tend to concentrate. Each of these authors looks at
wealthy individuals, pointing out that old fortunes like the Rockefellers’ and
Astors’ get diluted over time. If they had instead looked at the wealthy as a
class, they would see that Piketty is right to conclude that inequality has
increased, even if the monogrammed initials on the cufflinks and bracelets have
changed.

Feldstein and the Financial
Times claim to have found errors in the data, but Piketty has
refuted every one of their objections, in most cases by pointing out that the
writer had not read the footnotes or charts that accounted for what they were
calling mistakes. Unlike the dubious premise about debt and economic growth put
forth by Reinhart and Rogoff, Piketty’s overall theory stands up to scrutiny.

When both supporters and detractors of Capital in the Twenty-First Century
compare it to Karl Marx’ Capital, they demonstrate a lack of
familiarity with Marx’ 1867 tome. Piketty neither recreates nor transforms
Marx, who made a detailed, step-by-step analysis of capital, its origin, its
uses, and its relationship to labor. Piketty devotes 577 pages (in a very
easy-to-read translation by Arthur Goldhammer) to one sole aspect of capital:
its tendency to accumulate in fewer and fewer hands.

Marx postulated that labor creates
all surplus value from the exchange of money for a commodity. By contrast,
Piketty accepts at the very beginning that both capital and labor contribute to
the production and delivery of goods and services and focuses exclusively on
the distribution of wealth and income. Marx slowly and carefully constructed an
overarching economic theory, whereas Piketty tells a history.

Piketty has written one of the most
important books of economics since World War II, but is’ not without its flaws.
In tomorrow’s OpEdge, I’ll discuss them.

If it weren’t for the entertainment value, I’d be pleased that Texas Governor Rick Perry is foundering in the Republican presidential race. After all, Governor Perry, who is in an unprecedented fourth term as chief executive of the nation's second-largest state, still might get the Republican nomination for president. If that happens there’s no telling what the voters might be fooled into doing. Just look at how far George W. Bush got.